An earnest payment or earnest money is a specific form of

security deposit A security deposit is a sum of money held in trust. In leasing, security deposits, also known as "rent deposits", are required most often by lessors of automobiles, residential property, and commercial real estate. Security deposits in the Un ...

made in some major transactions such as real estate dealings or required by some official

procurement Procurement is the process of locating and agreeing to terms and purchasing goods, services, or other works from an external source, often with the use of a tendering or competitive bidding process. The term may also refer to a contractual ...

processes to demonstrate that the applicant is serious and willing to demonstrate an earnest of good faith about wanting to complete the transaction. In the

Middle Ages In the history of Europe, the Middle Ages or medieval period lasted approximately from the 5th to the late 15th centuries, similarly to the post-classical period of global history. It began with the fall of the Western Roman Empire and ...

, the earnest payment was called variously an earnest penny, Arles penny, or God's silver (in

Latin Latin ( or ) is a classical language belonging to the Italic languages, Italic branch of the Indo-European languages. Latin was originally spoken by the Latins (Italic tribe), Latins in Latium (now known as Lazio), the lower Tiber area aroun ...

Argentum Dei). It was either money or a valuable

coin A coin is a small object, usually round and flat, used primarily as a medium of exchange or legal tender. They are standardized in weight, and produced in large quantities at a mint in order to facilitate trade. They are most often issued by ...

token Token may refer to: Arts, entertainment, and media * Token, a game piece or counter, used in some games * The Tokens, a vocal music group * Tolkien Black, a recurring character on the animated television series ''South Park,'' formerly known as ...

given to bind a bargain, notably for the purchase or hiring of a servant. According to Black's Law Dictionary (sixth ed.), ''Et cepit de praedicto Henrico tres denarios de Argento Dei prae manibus'' ("And he took it from the aforesaid Henry ealed by a silver three pence iece handed over n the sight ofGod"). A potential buyer of property of high value such as residential real estate generally signs a contract and pays a sum acceptable to the seller by way of earnest money. The amount varies enormously, depending upon local custom and the state of the local market at the time of contract negotiations. If the seller accepts the offer, the earnest money is held in

trust Trust often refers to: * Trust (social science), confidence in or dependence on a person or quality It may also refer to: Business and law * Trust (law), a legal relationship in which one person holds property for another's benefit * Trust (bu ...

escrow An escrow is a contractual arrangement in which a third party (the stakeholder or escrow agent) receives and disburses money or property for the primary transacting parties, with the disbursement dependent on conditions agreed to by the transact ...

. These funds may be held directly by the seller's attorney, the

real estate broker Real estate agents and real estate brokers are people who represent sellers or buyers of real estate or real property. While a broker may work independently, an agent usually works under a licensed broker to represent clients. Brokers and age ...

(as in the State of New York) or by a

settlement Settlement may refer to: *Human settlement, a community where people live *Settlement (structural), downward movement of a structure's foundation *Settlement (finance), where securities are delivered against payment of money *Settlement (litigatio ...

title company Title insurance is a form of indemnity insurance, predominantly found in the United States and Canada, that insures against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage loans. Unlik ...

(as in states like California, Florida, and Texas). When the transaction is settled then the deposit is applied to the buyer's portion of the remaining costs. If the offer is rejected, the earnest money is usually returned, since no binding contract has been entered into.

References

Payment systems Common law legal terminology Property law legal terminology {{Realestate-stub

See also

References